Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

Home Depot was sued in 2008 by two whistleblowers claiming that the company had violated the False Claims Act by selling products that did not comply with the Trade Agreements Act (“TAA”) to the U.S. government through its GSA Schedule contract. The United States has not intervened in the case. Home Depot recently moved for reconsideration of the court’s denial of its motion to dismiss the allegations. In denying Home Depot’s second attempt to get the complaint dismissed, the court carefully walked through the elements of False Claims Act liability and determined that the complaint was properly pled. U.S. ex rel. Scott v. Actus Lend Lease, LLC et al., Case No. 2:08-cv-07940 (Apr. 22, 2011 C.D. Cal.).

For example, the court determined that the complaint sufficiently alleged facts demonstrating the submission of false claims, by finding that the qui tam relators (i.e., whistleblowers) had provided a spreadsheet listing 118 representative examples of transactions involving products sold to particular government customers that were manufactured in non-designated countries. The court rejected Home Depot’s argument that its claims for payment themselves did not explicitly misrepresent compliance with the TAA, and relied on well-established case law holding that requesting payment for goods or services of lesser quality than those ordered by the government or that failed to meet contractual requirements or specifications can also constitute false claims for payment. Note that this case differs from other recent False Claims Act actions against GSA Schedule contractors alleging TAA non-compliance, e.g., the Folliard case, which were dismissed because the relators failed to show that the government had actually purchased the non-compliant products. 

The court then determined that the complaint contained facts to support the allegation that Home Depot knowingly presented the false claims to the government because the relators had alleged that, although Home Depot knew that its GSA Schedule contract required compliance with the TAA and that it sourced products from China, a TAA non-designated country, the company knowingly failed to “institute any mechanism” to ensure that TAA non-compliant items were not sold off its Schedule contract to the government. 

It is vitally important for GSA Schedule contractors to ensure, both at the start of contract performance and on a regular basis throughout the life of the contract, that items offered for sale to the government are compliant with the Trade Agreements Act. Implementing a process through which a Schedule contractor investigates at regular intervals the source of products listed for sale on its Schedule contract is advisable. Often times companies change suppliers, or suppliers themselves change their sources of products, so even if a Schedule contractor ensures at the start of its contract that all listed products are TAA compliant, it should not assume its Schedule is TAA compliant going forward. Particularly given the five year (or more) duration of a GSA Schedule contract, there can be numerous changes in the supply chain leading to TAA non-compliance. Conducting regular and on-going due diligence on the country of origin of products offered for sale on a GSA Schedule contract will go a long way toward protecting the contractor from a viable False Claims Act allegation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

There have already been a number of high profile small business enforcement actions this year, an enforcement trend we discussed in our April 7 webinar, and a conviction from a federal jury in New York is the latest sign that this trend is continuing. 

Between June 2007 and June 2010, John Raymond Anthony White’s company, Mitsubishi Construction Corp., obtained four contracts set aside for veterans or service-disabled veterans with the Department of Veterans Affairs for construction work in New York, Pennsylvania, and Maryland. Mr. White used his alleged military status as a service-disabled veteran to establish Mitsubishi Construction Corp.’s eligibility for competing for and receiving these contracts. 

However, there was one problem—Mr. White never served in the military and lied about his status as a service-disabled veteran. When the contracts came under investigation, Mr. White compounded the problem by trying to hide the fraud by claiming that an Army veteran actually owned 51% of Mitsubishi Construction Corp. In doing so, not only did Mr. White fail to cover up the fraud, but he found himself facing additional charges for lying. On April 20th, he was convicted of fraud and lying for his actions and now faces a maximum of 75 years in jails and a possible fine of $3.75 million. He will be sentenced on July 20, 2011. 

Although this is a case of egregious fraud, it is worth noting that companies should always take care to verify their size and eligibility status for every contract they bid on. Even making an innocent incorrect certification can have devastating consequences. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On April 26, 2011, the government issued a proposed rule governing organizational conflicts of interest.  This proposed rule diverges substantially from the current framework in FAR 9.5, from the DFARS rule proposed last year, and from certain aspects of decades of decisional law from GAO and the Court of Federal Claims. Please click here for our summary of the FAR proposal.

 There are four differences that are particularly interesting:

•  Analysis Of Risk. The proposed FAR provision asserts that there are two kinds of risk that can flow from OCIs – (i) harm to the integrity of the competitive acquisition system and (ii) harm to the government’s business interests. The proposed rule sets forth different treatment based on that distinction.
•  Acceptance Of Risk Of Harm To Government Business Interests. In circumstances where the OCI harms the competitive acquisition system, the OCI must be substantially reduced, eliminated, or waived. However, in contrast, the FAR Councils’ proposal provides that the risk of harm to the government’s business interests may sometimes be assessed as an acceptable performance risk and further action may not be necessary to address the conflict.
•  Recognition Of Corporate Structural Barriers And Internal Controls. The proposed FAR provision recognizes that corporate structural barriers – such as independent boards of directors – may, in some circumstances, constitute sufficient mitigation.
•  Removal Of Unequal Access To Nonpublic Information From The OCI Framework. The proposed FAR provision removes the concept of unequal access to nonpublic information from the definition of OCIs, and treats it separately under FAR Part 4.

 In addition, the government has asked industry to focus on specific issues in formulating comments (which are due on or before June 27, 2011), including:

•  Is the definition of “organizational conflict of interest” sufficiently comprehensive to address all potential forms of such conflicts?
•  Do the enumerated techniques for addressing OCIs adequately address the Government’s interests? Are any too weak or overbroad? Are there other techniques that should be addressed?
•  Do the proposed solicitation provisions and contract clauses adequately implement the policy framework set forth in the proposed rule? For example, is a clause limiting future contracting an operationally feasible means of resolving a conflict? Would it be beneficial and appropriate for this information generally to be made publicly available, such as through a notice on FedBizOpps? Do the solicitation provisions and contract clauses afford sufficient flexibility to help an agency meet its individual needs regarding a prospective or actual conflict?
•  Does the proposed rule strike the right balance between providing detailed guidance for contracting officers and allowing appropriate flexibility for dealing with the variety of forms that organizational conflicts of interest take and the variety of circumstances under which they arise?
•  Are there certain types of contracts, or contracts for certain types of services, that warrant coverage that is more strict than that provided by the proposed rule?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On April 13, 2011, the U.S. Senate Committee on Homeland Security and Governmental Affairs approved S. 498, the Independent Task and Delivery Order Review Extension Act of 2011. This bill extends the Government Accountability Office’s (“GAO”) protest jurisdiction over task and delivery orders under civilian agency procurements in excess of $10 million through September 30, 2016, aligning the GAO’s protest jurisdiction over civilian and defense related procurements. 

Previously, on January 7, 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2011 (“NDAA for FY2011”), extending the GAO’s supplemental authority to hear protests of task and delivery orders in excess of $10 million, but only for Department of Defense (“DoD”) procurements. The legislative history of the NDAA for FY2011 did not explain any rationale for this incongruity.

The GAO was first given supplemental protest authority over DoD and civilian agency task and delivery orders by the 2008 National Defense Authorization Act, Pub. L. No. 110-181. Under this act, the GAO’s supplemental protest authority was set to expire after three years on May 27, 2011.

S. 498’s companion bill in the U.S. House of Representatives, H.R.899, was already approved by the Committee on Oversight and Government Reform on March 10, 2011. Currently, S. 498 and H.R. 899 await a vote by their respective houses of Congress. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On Monday, millions of individuals and companies filed their 2010 tax returns. Some of these individuals and companies have fallen behind on their tax payments. The reasons for falling behind vary—some have simply fallen on hard times and cannot pay, while others thumb their noses at the tax laws in a bold game of “Catch Me if You Can.” 

However, with the size of the country’s deficit in the news almost every day recently, the Government is looking to get its money however it can. One proposed effort is aimed at government contractors and seeks to ensure that no grants or government contracts are awarded to individuals or entities with serious tax delinquencies. 

Last week, the House Committee on Oversight and Government Reform recommend that H.R. 829, the Contracting and Tax Accountability Act of 2011, be considered by the entire House of Representatives.  If the Bill becomes law as written, it will prevent individuals and companies with a “seriously delinquent tax debt” from receiving a federal government contract or grant. The Bill defines a “seriously delinquent tax debt” as “an outstanding debt under the Internal Revenue Code of 1986 for which a notice of lien has been filed in public records pursuant to section 6323 of such Code.” The Bill also requires amendments to the FAR to implement its provisions. 

There is still a long way to go before becoming law, but contractors with seriously delinquent tax debts should consider addressing their tax issues sooner rather than later. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The qui tam provisions of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., allow private individuals to file suit on behalf of the United States when they have evidence or information that false claims or false statements related to false claims were made to the government. When the FCA was originally enacted in 1863, qui tam complaints were public documents, which meant that a complaint’s allegations of fraud were open to members of the public and were not hidden from the named defendant. In 1986, however, Congress amended the FCA by adding new seal provisions to the statute. These provisions require every qui tam complaint to be filed under seal for 60 days to give the government time to investigate the complaint’s allegations and to decide whether it wants to intervene in the action. While the initial sealing period is only 60 days, cases typically remain under seal for a year or more while the government investigates.

In ACLU v. Holder, (4th Cir. Mar. 28, 2011), the American Civil Liberties Union (“ACLU”), joined by OMB Watch and the Government Accountability Project, filed suit challenging the constitutionality of the seal provisions. The ACLU argued that the seal provisions violate the First Amendment by denying the public’s right of access to judicial proceedings and by gagging qui tam relators from speaking about their qui tam complaints. The ACLU also argued that the seal provisions violate the Constitution’s separation of powers clause by infringing on the authority of lower federal courts to decide on a case-by-case basis whether a particular qui tam complaint should be unsealed.

In a split 2-1 decision, the Fourth Circuit upheld the constitutionality of the seal provisions and affirmed the dismissal of the ACLU’s case. Assuming, without deciding, that the First Amendment right of access extends to a qui tam complaint and docket sheet, the court held that denial of access did not violate the First Amendment because the FCA’s seal provisions are narrowly tailored to serve a compelling government interest of protecting the integrity of ongoing fraud investigations. The court cited three reasons for finding that the provisions were narrowly tailored: (1) Congress balanced the government’s investigatory needs against the need for public access to court documents by crafting a detailed and limited 60-day process for initiating and pursuing a qui tam complaint under the FCA; (2) the seal provisions mandate judicial review at the end of the 60-day period, requiring the government to demonstrate “good cause” to a federal court in order to extend the seal; and (3) the seal provisions limit the relator only from publicly discussing the filing of the qui tam complaint, not the existence of the fraud. 

The court also held that the ACLU and other groups lacked standing to assert the claim that the FCA’s gag order provision preventing qui tam relators from speaking about their qui tam complaints violated the First Amendment. The court rejected the ACLU’s attempt to establish First Amendment standing as persons who are “‘willing listeners’ to a willing speaker who, but for the restriction, would convey information,” because the ACLU failed to identify any particular qui tam relator who, but for the seal provisions, was a willing speaker who desired to speak with them.

The court also rejected the argument that the seal provisions violate the separation of powers under the Constitution, holding that the FCA seal provisions are “a proper subject of congressional legislation and do not intrude on ‘the zone of judicial self-administration to such a degree as to prevent the judiciary from accomplishing its constitutionally assigned functions.’”

Judge Gregory wrote a dissenting opinion in which he observed that the result of upholding the seal provisions meant that “we may never know what wasteful spending and fraud against the public fisc persists because of government delay, inaction, or under enforcement . . . .” In his dissent, Judge Gregory concluded that the sealing requirement is facially unconstitutional because “it automatically and categorically seals all FCA complaints for at least 60 days,” and the Government failed to justify its First Amendment infringement with compelling interests and narrow tailoring. He noted that “the freedom to speak about FCA complaints bolsters the public role of relators and pressures the government to rigorously enforce the FCA—or to expeditiously decline to intervene.”

It remains to be seen whether the case will be appealed to the Supreme Court or reconsidered by the Fourth Circuit en banc. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As we blogged previously, as of today - April 15, 2011 - the public has access to all information (excluding past performance reviews) in the Federal Awardee Performance and Integrity Information System ("FAPIIS"). FAPIIS was created in 2010 as a one-stop shop for contracting officers to review information about prospective contractors' business ethics, integrity, and performance. Click here for the public portal, which is now live and ready for use.

The public will now have access to contractor-provided information about criminal, civil, and administrative proceedings, as well as government-provided information about contract terminations for default or cause and suspension and debarment. With respect to information entered in FAPIIS before April 15, 2011, it will be subject to the Freedom of Information Act process and is unlikely to be available in FAPIIS.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Verizon Communications, Inc. recently paid the U.S. government $93.5 million to resolve False Claims Act allegations that it overcharged the government on voice and data telecommunications services contracts.  In addition to the significance of the amount paid, the case is notable for both the government’s aggressive enforcement of FAR provisions and the fact the alleged fraud occurred in the midst of a massive and complex telecom merger. Both underscore the need for timely and astute Government Contracts counseling.

Verizon subsidiary MCI Communications Services Inc. dba Verizon Business Services (“MCI”) is alleged to have invoiced the General Service Administration (“GSA”) for a variety of federal, state and local taxes and surcharges in violation of the contracts or applicable regulations in connection with the FTS2001 and FTS2001 Bridge contracts to provide voice and data telecommunications to an array of federal agencies.  The Department of Justice’s (“DoJ’s) joint investigation with GSA’s Office of the Inspector General found that Verizon and MCI submitted false claims under the contracts for the reimbursement of property taxes, common carrier recovery charges and unallowable surcharges -- charges that the government alleges are not directly reimbursable under the FTS2001 contracts.

According to the complaint in United States ex rel. Stephen M. Shea and 2Probe LLC v. Verizon Communications, Inc., MCI began submitting fraudulent invoices to GSA in 1999 that included surcharges for federal, state and local taxes, as well as certain duties, bundled into line items that “conceal the true nature of the charges.”  FAR 52.229-04, among other provisions governing the FTS2001 contract, states, “[u]nless otherwise provided in this contract, the contract price includes all applicable Federal, States and local taxes and duties.”  Since the FTS2001 contract did not provide for tax-related surcharges, MCI’s surcharges violated the reg, according to the complaint.

The government alleged the fraud lasted from 1999 to 2010.  In 2006, Verizon acquired MCI for $6.75 billion during a period of frenzied consolidation in the telecom industry. Verizon inherited the FTS2001 contract --and the government alleges the fraudulent billing continued unabated.

The government learned of the alleged fraud from relator Stephen Shea, a telecom consultant who assisted corporations in managing telecom costs. According to the complaint, Shea first noticed the errant surcharges in the communications bills of his corporate clients. (The other relator, 2Probe LLC, is owned by Shea and a Delaware-based corporate litigator.) GSA’s Inspector General and DoJ then jointly investigated the matter.  DoJ announced the settlement on April 5. Verizon agreed to $92.7 million plus interest; the whistleblowers’ share has yet to be decided.

“This $93 million recovery should make contractors realize that we are firmly committed to ensuring the integrity of corporate billing practices with respect to government programs,” said U.S. Attorney for the District of Columbia Ronald C. Machen, Jr., in a statement.

The case offers lessons. First, it pays to closely scrutinize the myriad regulations incorporated into government contracts. And such scrutiny is all the more crucial during fast-moving corporate deals, when contractual details can get lost in the shuffle. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For one reason or another, the date on which an agency anticipates granting a contract award often comes and goes with no award decision being made. In these situations, contractors are often asked beforehand to extend the acceptance period of their proposals to accommodate the expected delay in award. But what happens when the contractor does not agree to the extension by the agency’s deadline for doing so? Does that mean the contractor foregoes any chance it may have had at receiving the award? According to GAO, the answer is sometimes “no.”

In an April 6, 2011 decision, Ocean Services, LLC, B-404690, GAO dealt with this exact situation. In this total small business set-aside, the agency thrice asked offerors to extend the acceptance period of their proposals, and each time, the offerors agreed to the extension. When the agency sought a fourth extension so that it could perform additional market research, Ocean Services initially responded that it was concerned that the agency was pursuing a re-competition without the small business component. Ocean Systems, at that time, did not extend the acceptance period of its proposal.

The agency then sent, Ocean Services an e-mail on Friday, December 17, 2010, reminding Ocean Services that its proposal was set to expire the next day, a Saturday. The agency requested an extension of the offer, and on the next business day, Monday, December 20, Ocean Services extended its proposal. All other offerors extended their proposals before December 18, 2010.

The agency subsequently excluded Ocean Services from the competition because Ocean Services’ did not extend its proposal until December 20, two days after the proposal had expired. Ocean Services filed a bid protest at GAO challenging the exclusion.

In its decision, GAO applied the rule that when a proposal has expired, an offeror may “revive its proposal . . . if doing so would not compromise the integrity of the competitive bidding system.” GAO found that revival of the bid was appropriate because, in this case, Ocean Systems never declined to extend its offer and sought to extend it on the first business day after the offer expired. Because only two days had elapsed between the proposal’s expiration and revival, GAO concluded that Ocean Systems could not have “compromised the procurement process by avoiding market fluctuations to which other offerors were exposed.” Absent prejudice to other offerors, GAO recommended that the agency accept the revival of Ocean Systems’ proposal.

Although there certainly would be cases where revival of an expired proposal might not be appropriate, Ocean Services demonstrates that GAO does not condone strict enforcement of proposal expiration dates where the competitive process is not harmed by the proposal’s revival.
 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Lost in the current political fight over the federal budget is the reality that a government shutdown may have consequences for civil litigation pending in the federal courts. If federal government attorneys are included in the approximately 800,000 staffers deemed non-essential, they will be banned from using email, accessing their Blackberrys, and doing any work on cases under the Anti-Deficiency Act. A spokesman for the Justice Department has stated that in U.S. Attorney offices, while “all criminal litigation will continue without interruption,” in the event of a shutdown, the department will be forced “to stop or significantly curtail” other activities including most civil litigation.

Despite the limitations on Department of Justice attorneys, the federal courts have stated their intention to continue with business as usual.  The Administrative Office of the U.S. Courts says that the Judiciary will use non-appropriated funds to keep the courts running for up to two weeks. According to David Sellers, spokesman for the Office, trials in federal courts will continue and litigants will be able to file lawsuits despite the likely furloughs. Thus, it appears that federal district courts and courts of appeals will continue to function at full staff and without interruption.

The Court of Federal Claims – where every case includes the U.S. government as a litigant – also plans to continue operations during the shutdown. Moreover, it appears the Court may not be very sympathetic to the Justice Department’s staffing limitations. Chief Judge Hewitt issued a statement that the court “does not expect to issue continuances based on the lapse or anticipated lapse of appropriated funds and will adhere to schedules currently in effect.” 

No formal announcements have been made by the Armed Services Board of Contract Appeals (“ASBCA”) or the Civilian Board of Contract Appeals (“CBCA”), but current expectations are that the ABSCA will close if there is a furlough, while the CBCA will continue to operate as normal. An ABSCA shutdown may lead to delays in proceedings before that Board although, under the rules, contractors should still be able to file notices of appeal via mail to satisfy the ninety day deadline set by the Contract Disputes Act.

The Government Accountability Office also plans to shut down for the duration of any work stoppage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Moving beyond faxes into the digital age, the Court of Federal Claims in Watterson Constr. Co. v. U.S. (Mar. 29, 2011) found that a contractor's late proposal should be excused when the delay was caused solely by a "mail storm" at the agency which overloaded and slowed down its servers. The contractor had submitted a proposal by email at 11:01 AM in advance of a 12:00 PM submission deadline. The email was “received” by the first of the Army Corps of Engineers’ servers at 11:29 AM. But, after several employees had hit “reply all” to an email sent to a large number of users, the agency’s servers experience a “mail storm” which delayed the transmission of the email from the server to the Contracting Officer’s inbox until 12:04 PM. As a result, despite earning a higher rating and being $2 million cheaper, the contractor’s proposal was rejected for having been untimely.
 

Judge Braden found the contractor’s untimely submission to be excused in these circumstances on three independent grounds. First, she found that the proposal was not late as it had been “received by the Government’s e-mail servers before the due date,” even if it had not yet reached the CO’s inbox. Second, even if the proposal was late, Judge Braden found unpersuasive both GAO precedent and CFC dicta to find that the FAR’s “government control” exception applied to e-mail proposals, thus excusing the contractor’s late submission. Finally, Judge Braden analogized the “mail storm” to a more traditional weather emergency, finding that it was an “emergency or unanticipated event which interrupts normal Government processes,” thus entitling the contractor to a 1-day extension under the FAR.
 

This final holding will likely be the most useful for contractors going forward. By demonstrating its willingness to treat network interruptions as legitimate impediments to timely filing, the CFC cracked the door for contractors whose proposals may previously have been barred as untimely.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Women-owned small businesses (WOSBs) should now have greater access to federal contracts as a result of a long-awaited interim rule, published April 1, 2011, which provides guidelines for the WOSB program and allows contracting officers to set aside contracts for certified WOSBS and economically-disadvantaged WOSBs. To qualify for this new program, which helps agencies achieve the statutory goal of awarding five percent of federal contracting dollars to WOSBs, a WOSB must be more than 51% owned and controlled by women and must meet the regulatory definitions of a small business. In a March 31 web chat, Michele Chang of the SBA said that agencies are “teeing up opportunities” and the SBA expect contracts to be awarded in the fourth quarter, which is historically when the majority of small business contracts are awarded.

However, despite the momentum from these new regulations and the Small Business Administration's (SBA) intent to provide WOSBs "with the oxygen they need to take their business to the next level," until the SBA approves third-party certifiers, access to government contracts for non-8(a) WOSBs will be limited to a self-certifying entities and contingent upon the submission of a laundry list of corporate and other documentation for each procurement, thus imposing burdens on WOSBs and contracting officers.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As the press reports about delays in the appropriations process have multiplied in recent days, we have received a number of calls from clients about the contractual issues that might arise if there is a government shutdown this Friday. Although the issues that might arise in connection with a shutdown will likely be specific to the circumstances of individual contracts, there are several broad issues that all contractors should be considering. Based on our experience with the issues that arose during the last shutdown in the mid-nineties and on the standard provisions in most contracts, we recommend that contractors consider at least the following:

• Where Is the Money? For incrementally funded contracts, a "shutdown" situation is likely similar to those experienced at the end of any fiscal year when there is a "gap" between appropriations. Contractors will need to consider the implications of the various standard clauses (Limitation of Costs, Limitation of Funds, Limitation of Government Obligations) that may affect the government's obligation to pay costs in excess of the amounts obligated to their contracts. Of particular concern will be the standard provisions in those clauses that may limit the government's liability for termination costs in the event that the contracts are eventually terminated without new funding. As is the case when there is a gap in funding, contractors will need to decide whether to continue to perform or to take the actions authorized under the various relevant clauses when funding is insufficient to pay for anticipated costs. But for contracts that are fully funded or that have incremental funding sufficient to cover all anticipated costs, including termination costs, a shutdown would not normally create any additional risk.
• Delay and Disruption. During the last federal shutdown, due to the unavailability of appropriated funds, the principal contractual issues reported related to the disruption and delay caused by the inability of contractors to gain access to closed government facilities or to obtain timely direction and support from the government. For example, a contractor that performs services in a federal facility may find that the facility is closed, so the contractor's employees do not have access to their workplace. In that situation, contractors will need to decide whether to (1) continue to pay the employees for idle time caused by the shutdown, (2) force the employees to take vacation or other paid leave for the duration of the shutdown, or (3) furlough or lay off the employees. In connection with those decisions, contractors need to consider not only their contractual requirements, but also the applicability and requirements of federal, state, and local labor and employment laws (including the federal WARN Act and state analogs), the terms of their employment contracts and collective bargaining agreements, the impact that their decisions may have on employee relations, and other relevant factors. In a situation in which the duration of the shutdown is unclear, those decisions can be even more difficult, involving a variety of competing and largely unattractive options.
• Remedy. Contract type and the availability of a remedy from the government for the consequences of a shutdown will also be important in the decision-making process. For contractors with cost-reimbursement contracts, the reasonable costs of coping with a shutdown should be recoverable, although there may be issues about the allocability and allowability of specific items of cost. On fixed-price contracts, any recovery from the government will likely depend on whether the contractor is entitled to an equitable adjustment. And, on T&M contracts, there are likely to be contract-specific issues about whether the contractor is entitled to be paid under the contract for idle time or would need to make a claim for an equitable adjustment. Again, every situation should be assessed separately, based on specific facts. But, in general, contractors should take steps to ensure that any increased costs associated with the shutdown are collected in a way that will support an equitable adjustment claim, if the contractor ultimately decides that a claim is warranted.
• Don't Ask, Don't Tell? Contractors should also weigh whether it is prudent to seek direction from the government in advance of a shutdown. Indeed, by asking, a contractor might prompt direction from the government that puts the contractor in a situation worse than attempting to gauge the uncertainty.
• Mission Creep. Some contractors may actually be approached by their government customer seeking to off-load, at least temporarily, work that cannot be performed by the government during the shutdown period. If the contract funding is available, the government may want to increase the scope of the contract in order to ensure that certain work is not disrupted or delayed. Contractors should ensure that any increases in scope and associated cost or price adjustments are appropriately reflected in a contract modification.
• Timing of Payment. There may be delays in payment. As noted above, the government's ultimate legal liability for payments due on contracts that are already funded at the time of the shutdown are unlikely to be at issue, but if the government employees who process contractor invoices and make contractor payments are not at work, there will obviously be no payments made. For large contractors with substantial bills that may involve payments of millions of dollars on a daily basis, the consequences of even a short delay in payment could be economically significant, although probably not an existential threat to the company. For contractors without readily available cash or credit lines, the consequences of more than a brief delay in payment could be catastrophic. Again, each situation needs to be evaluated based on the circumstances of the contractor and the consequences of delay in payment. Suspension of performance for non-payment may be justified legally, but for contractors performing in war zones or under other circumstances where suspension of performance would have significant collateral consequences, decisions to suspend performance, even if legally justified, may be exceptionally difficult.

When the Government was last forced to shut down because of delays in the appropriations process, the shutdown was relatively short, and the consequences were relatively modest. Although, there were claims and there was some litigation, the impact on industry was not substantial. However, in some cases -- both then and today -- even a very brief shutdown could have material economic consequences for individual contractors. A shutdown that lasts more than a few days might have devastating effects, particularly on service contractors that perform in government facilities. Even if it seems improbable that a shutdown will occur or that it will last long if it does occur, it would be prudent for all contractors to assess the likely impact of a shutdown on their specific operations and to make contingent plans for dealing with the consequences of a shutdown. Finally, the Office of Federal Procurement Policy announced last week that if there is actually a shut down, it will issue some sort of guidance, at least internally in the government of how to move forward.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Recent Changes to the Small Business Administration’s 8(a) Program took effect on March 14, 2011. This is the First major revision to the 8(a) program since 1998. Per the SBA, the goal of the rule changes were to better ensure that the benefits of the SBA flow to the intended recipients and to help prevent waste, fraud, and abuse. Read below for highlights of some of the key changes!

The new changes include additional restrictions on Joint Ventures. The 8(a) partner of the Joint Venture must now perform at least 40% of the work, including those awarded through a mentor-protégé agreement. The previous requirement was only that the small business perform a “significant portion of the work.” In addition, Joint Ventures awarded to an 8(a) firm will not be allowed to win more than 3 contracts during a 2-year period, and cannot subcontract work to a non-8(a) Joint Venture partner. The new rules also hold mentor firms more accountable: mentors who do not provide assistance to their protégés could face consequences ranging from stop-work orders to debarment. New record-keeping provisions will require the protégé firm to submit information reflecting the work breakdown within the Joint Venture.

The new rules also clarify the income & asset determination needed for 8(a) eligibility. For instance, the new rules exclude individual retirement accounts from the strict net worth calculations that are used to determine eligibility for the program. With regard to income requirements, the new rules raise the adjusted gross income to enter into the program from $200,000 to $250,000, and increase the adjusted gross income for continued eligibility for the program from $300,000 to $350,000. The total value of the participant’s assets necessary to enter the program has been raised from $3 million to $4 million, and the total assets necessary for continued eligibility has increased from $4 million to $6 million.

The rule changes limit the type and amount of fees an agent or representative can charge for assisting an 8(a) firm. Specifically, the language of this part of the new rule prohibits unreasonable fees as well as arrangements in which the fees are a percentage of the contract award or revenue.

The new rules also enhance SBA opportunities for military personnel, allowing owners of 8(a) firms called to active military status to elect to be temporarily suspended rather than lose any of their nine-year term in the program.

In addition to some of the items listed above, the new rules primarily focus on reforming and enhancing the transparency of Alaska Native Corporations (ANCs), 8(a) sub-entities that can win sole-source contracts of any size. For the first time, firms owned by ANCs or by Indian tribes, native Hawaiian organizations and community development corporations will be required to report financial benefits flowing back to their communities.  Firms must now submit information relating to: funding of cultural programs, employment assistance, jobs, scholarships, internships, and subsistence activities. (The Final Rule, published in the Federal Register on February 11, 2011, provides an additional six months for the SBA to work with the ANCs to implement these particular provisions.)

The Small Business Administration provides a number of additional resources regarding the rule changes, including the text of the final rule. These are available at: http://www.sba.gov/content/revised-8a-regulations.

• Email This
• Print
• Comments
• Trackbacks
• Share Link